Investment Highlights

• We are upgrading Felda Global Ventures (FGV) from SELL to HOLD with a higher fair value of RM1.76/share, which is based on a P/BV of 1.1x. Previously, we had assumed a 10% discount to FGV's book value per share of RM1.60/share to arrive at its fair value of RM1.45/share.

• We believe that the worst is over for FGV as with the return of the CEO, the group would be able to focus on its profitability and strategic direction.

• According to the Bursa announcement, FGV's special shareholder, the Minister of Finance would like Datuk Zakaria Arshad to return as CEO.

• Zakaria will resume his duties on 16 October 2017. FGV's CFO Ahmad Tifli resumed his duties on 4 October 2017.

• The return of the CEO and CFO implies that both men have been cleared of wrongdoings relating to the outstanding debts of Safitex Trading LLC. FGV recorded an impairment of RM29.6mil in its 1QFY17 results as Safitex, which is based in Afghanistan, could not settle its debts.

• Going forward, we believe that there would not be any significant change in FGV's direction. We reckon that the group would be focusing on improving its operational efficiencies and selling non-core assets.

• Recently, it was reported that FGV plans to sell its 16% stake in AXA Affin. The net book value of FGV's stake in AXA Affin is RM90mil. The disposal is expected to be completed by year-end.

• Operationally, FGV's FFB production growth is weak compared with its peers. The group's FFB output rose by only 2.6% YoY in 8MFY17 compared with other plantation companies, which recorded 15% to 30% expansions.

• FGV attributed its poor productivity to a shortage of labour. FGV has a shortage of almost 8,000 workers. About 1,200 workers arrived in August while another 7,000 workers will arrive by year-end.

Source: AmInvest Research - 10 Oct 2017